Suppose the Interest Rate Is 8 Percent

question 101

Multiple Choice

Suppose the interest rate is 8 percent.Consider three payment options.
1) $300 today.
2) $330 one year from today.
3) $360 two years from today.
Which of the following is correct?

• A)1 has the highest present value and 2 has the lowest.
• B)2 has the highest present value and 3 has the lowest.
• C)3 has the highest present value and 1 has the lowest.
• D)None of the above is correct.

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Definitions:

Price

The monetary value assigned to the acquisition of a service or good.

Consumer Surplus

The difference between the total amount that consumers are willing to pay for a good or service and the total amount they actually pay.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive.

Equilibrium

A state of balance in a market or economy where supply equals demand, with no external influences causing disruption.